M arket-based options for biodiversity: an overview Katia Karousakis, Environment Directorate, OECD Dialogue Seminar on Scaling Up Finance for Biodiversity 6-9 March 2012, Quito Ecuador

Need for policy instruments All societies depend on environmental goods and services (directly or indirectly) Most environmental values are implicit rather than explicit  private costs and benefits ≠ social costs and benefits Why? “Public good” characteristics, externalities, imperfect information…  over-exploitation, unsustainable use of natural resources, pollution … leading to undersupply of biodiversity and ecosystem services Regulatory (command-and-control) approaches; Economic instruments; Other information/voluntary instruments Economic instruments (~ market-based options) seek to provide correct price signal to producers and consumers i.e. bridge the divide between private and social costs and benefits Overall objective : how to get highest biodiversity benefits at minimum cost. What is best feasible policy mix to achieve intended goal?

Selecting appropriate instrument mix Environmental, economic and distributional implications of policy instruments depend on inter alia:  Nature of environmental problem and drivers of loss  Design and implementation features of instruments  Governance and institutional capacity What do we mean by economic/market-based options?  Taxes, charges, user fees, subsidies  Payments for Ecosystem Services  Biodiversity Offsets/Biobanking  Individually transferable quotas  Certification [information instruments]

Examples of applications Taxes/charges/ user fees/subsidy PESBiodiversity offsets Tradable permits - ITQs Many (local, national) > 300 programmes worldwide (local, national, international) > 45 programmes worldwide (project, local, national) Cuba, Denmark, Philippines, Sweden, etc Australia, Costa Rica, Mexico, Sweden, Kenya, USA, etc Australia, Brazil, Canada, Mexico, Uganda, UK, USA, etc Australia, Canada, Iceland, Netherlands, New Zealand, USA, etc e.g. Norway reduced fishery subsidies by USD 120 million 5 national PES channel > USD 6.5 billion per year (OECD, 2010) USD billion (Madsen 2011) Pollution (fertilisers, NOx) national park access fees, timber rent taxes, etc Biodiversity, watershed services, climate, landscape beauty Species, wetlands, forests. Impacts from mining, pulp & paper, etc Fish

Some closing remarks… Each environmental problem has different characteristics, and is driven by different underlying and proximate causes All policy interventions can have positive and negative impacts (will generate winners and losers) –Need to design carefully, monitor results and adapt over time Economic instruments not a panacea should be used in a policy mix - but they can  be more cost-effective  generate revenue/finance (from public and private sector)

Some reports and publications OECD (2010) Paying for Biodiversity: Enhancing the Cost- Effectiveness of Payments for Ecosystem Services OECD (2009) Promoting Biodiversity Co-Benefits in REDD OECD (2008) People and Biodiversity: Impacts, Issues and Strategies for Policy Action OECD (2008) Natural Resources and Pro-poor Growth: the Economics and Politics OECD (2005) Environmental Fiscal Reform for Poverty Reduction OECD (2002) Handbook of Biodiversity Valuation: A Guide for Policy Makers